Call 07 834 6000

Beware The Caveat

14 August 2012

You have signed up to purchase a property and paid a 10% deposit, but you aren’t going to complete the purchase for another year. What if the vendor sells to someone else during that time? What if the vendor then refuses to refund your deposit or can’t pay your deposit back? How can you protect yourself in this situation?

You have separated from your husband and left the family farm. The farm is owned by your husband alone, but under the Property (Relationships) Act 1976 you are entitled to a share. How can you prevent your husband from selling the farm without your knowledge?

Caveats and notices of claim

In order to give notice of your interest in a property you have bought, you can register a “caveat” against the title. A caveat will protect your right to purchase the property by preventing the owner selling, mortgaging or dealing with the property without your knowledge.

If you wish to protect your interest in a property under the Property (Relationships) Act 1976, you can register a notice of claim under that Act. The notice of claim works in the same way as a caveat.

What is caveat and how does it work?

“Caveat” is a Latin word which means “let him or her beware.” Once a caveat has been registered against the title to the land, anyone searching the title can see that someone else claims an interest in the land.

If the owner attempts to register any dealing against the title (for example, transfer the land to someone else), then the caveator is served with notice. The caveator must then apply to the High Court within the required time for an order that the caveat not lapse. If the caveator does not do this, the caveat will lapse and the owner will be free to deal with the land as the owner pleases. A caveat remains on the title until the caveator’s claim has been dealt with, or the caveator withdraws the caveat. While the caveat is in place, no dealings can be registered against the land unless the caveator consents to their registration.

Other uses of caveats

Caveats can also be used to protect other unregistered interests – such as those of tenants, mortgagees, rights of way or other easements and beneficiaries of trusts who are entitled to an interest in the land.

A purchaser of land does not usually register caveat unless there are circumstances that make this desirable. The long term agreement example given above is one. A caveat may also be desirable where the vendor tries to cancel an agreement, or the purchaser is worried that someone else might register an interest against the title that will take priority over the purchaser’s interest.

You must have “reasonable cause”

You should not register a caveat unless you honestly believe on reasonable grounds that you have a sufficient interest in the land to support a caveat. Being owed money by someone who owns land does not, on its own, give you the right to lodge a caveat. You can only register a caveat if that person has agreed to give you a mortgage. If you register a caveat without having reasonable cause, you could be liable to pay compensation to anyone who has suffered damage as a result.

You should take advice from your lawyer if you believe that a caveat might be the appropriate course of action to protect your interest in some land.

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.

Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.